More than five million income tax returns were revised after the tax department flagged incorrect or bogus deduction claims last year, lowering refund claims by ₹2,000 crore, Central Board of Direct Taxes (CBDT) chairperson Ravi Agrawal told a parliamentary committee.
Agrawal said the tax department had two choices when it detected the bogus claims—initiate a scrutiny or request taxpayers to update their returns based on information available with the tax authority—and chose the latter, according to a report tabled by the Parliamentary Standing Committee on Finance in the Lok Sabha on Thursday.
The report, quoting the CBDT chairman, said that in July 2025 the department carried out verifications into bogus deduction claims, including donations and deductions under Section 80G of the Income Tax Act, 1961, which covers contributions to charitable organisations and relief funds. The exercise indicated a substantial number of fraudulent or incorrect claims, said Agrawal.
The issue before the department was how to proceed and enforce the necessary corrections, and identify high-risk , the chairman said.
“Notwithstanding the fact that we had the information, one option before us was to proceed with scrutiny, but we did not adopt that course. Instead, we nudged the taxpayers and requested that they review the income tax returns they had filed and modify the returns, if required,” the report quoted the chairman as saying.
The has issued ₹3.34 trillion in tax refunds this financial year, up to 10 February. This is about 19% lower than the refunds issued in the same time a year ago. These are refunds on returns filed in 2025-26 pertaining income earned in FY25.
In FY26, 91.2 million income tax returns were filed up to 28 February. The figure is expected to go up by the end of March. In FY25, 91 million tax returns were filed.
More than 5 million returns have been updated and revised, and refund claims amounting to ₹2,000 crore have been reduced through these returns, said the chairman.
The move signals that the tax department is increasingly resorting to nudging taxpayers with information, rather than using the full force of the law to enforce compliance. The trend also comes after a rejig in personal income tax slabs and an increase in tax rebate in the FY26 budget meant to benefit taxpayers, including the middle class. The tax cuts necessitated enhanced monitoring and compliance to widen and deepen the tax base.
Rajat Mohan, senior partner at chartered accountancy firm AMRG & Associates, said the fact that nearly five million taxpayers updated their returns following such alerts highlights the growing effectiveness of the department’s digital intelligence framework and its strategy of nudging taxpayers towards voluntary compliance.
“This approach not only safeguards revenue—evidenced by the reduction of approximately ₹2,000 crore in refund claims—but also helps reduce litigation and the administrative burden associated with large-scale scrutiny,” said Mohan.
The Parliamentary Standing Committee report emphasized the strengthening of the department’s technological backbone.
Mohan said the department’s for information and communication technology, along with broader investments in infrastructure modernization and digital systems is expected to support advanced data analytics and AI-based risk profiling, deeper integration of the annual information system, tax deducted at source, GST and financial transaction data, as well as automated alerts that prompt taxpayers to correct potential mismatches at an early stage.
“Taken together, these developments suggest a gradual transition towards a preventive and intelligence-led tax administration model, where early detection of discrepancies and calibrated taxpayer nudges help protect revenue while minimising intrusive enforcement actions,” said Mohan.
Earlier this month, the tax department conducted an investigation into tax patterns in the food and beverages sector and found that several restaurants were deleting bulk bills and making other modifications to suppress actual sales.